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Is the stationarity of the yen real exchange rates a puzzle? This paper attempts to shed light on the puzzling finding that the results of applying the conventional or nonlinear unit root tests to the yen real exchange rates (RERs) in some recent studies appear to be rather sensitive to whether or not including the data of recent decade in the studies. It is found that this sensitivity of the test results may come from the failure to take into account the large rise and fall in the yen RERs. Using the newly developed unit root tests which account for the presence of multiple smooth temporary breaks in the RERs, the results clearly show that the yen RERs in the post-Bretton Woods period can be characterized as being linear or nonlinear stationary around infrequent smooth temporary mean changes, supporting the validity of PPP

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  • Su Zhou

    (University of Texas at San Antonio)

Abstract

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  • Su Zhou, 2012. "Is the stationarity of the yen real exchange rates a puzzle? This paper attempts to shed light on the puzzling finding that the results of applying the conventional or nonlinear unit root tests to the," Working Papers 0005, College of Business, University of Texas at San Antonio.
    • Handle: RePEc:tsa:wpaper:0017eco
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    References listed on IDEAS

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    1. Georgios Chortareas & George Kapetanios, 2004. "The Yen Real Exchange Rate may be Stationary after all: Evidence from Non‐linear Unit‐root Tests," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(1), pages 113-131, February.
    2. Su Zhou & Mohsen Bahmani-Oskooee & Ali M. Kutan, 2008. "Purchasing Power Parity before and after the Adoption of the Euro," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 144(1), pages 134-150, April.
    3. Mohsen Bahmani-Oskooee & Ali M. Kutan & Su Zhou, 2008. "Do Real Exchange Rates Follow a Nonlinear Mean Reverting Process in Developing Countries," Southern Economic Journal, John Wiley & Sons, vol. 74(4), pages 1049-1062, April.
    4. Kapetanios, George & Shin, Yongcheol & Snell, Andy, 2003. "Testing for a unit root in the nonlinear STAR framework," Journal of Econometrics, Elsevier, vol. 112(2), pages 359-379, February.
    5. Taylor, Mark P & Peel, David A & Sarno, Lucio, 2001. "Nonlinear Mean-Reversion in Real Exchange Rates: Toward a Solution to the Purchasing Power Parity Puzzles," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 1015-1042, November.
    6. Liew, Venus Khim-sen & Baharumshah, Ahmad Zubaidi & Chong, Terence Tai-leung, 2004. "Are Asian real exchange rates stationary?," Economics Letters, Elsevier, vol. 83(3), pages 313-316, June.
    7. Sarno, Lucio & Taylor, Mark P. & Chowdhury, Ibrahim, 2004. "Nonlinear dynamics in deviations from the law of one price: a broad-based empirical study," Journal of International Money and Finance, Elsevier, vol. 23(1), pages 1-25, February.
    8. Lucio Sarno & Mark P. Taylor, 2002. "Purchasing Power Parity and the Real Exchange Rate," IMF Staff Papers, Palgrave Macmillan, vol. 49(1), pages 1-5.
    9. Lucio Sarno, 2005. "Viewpoint: Towards a solution to the puzzles in exchange rate economics: where do we stand?," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 38(3), pages 673-708, August.
    10. Christopoulos, Dimitris K. & León-Ledesma, Miguel A., 2010. "Smooth breaks and non-linear mean reversion: Post-Bretton Woods real exchange rates," Journal of International Money and Finance, Elsevier, vol. 29(6), pages 1076-1093, October.
    11. Aggarwal, Raj & Montanes, Antonio & Ponz, Monserrat, 2000. "Evidence of long-run purchasing power parity: analysis of real asian exchange rates in terms of the Japanese yen," Japan and the World Economy, Elsevier, vol. 12(4), pages 351-361, December.
    12. Cheung, Yin-Wong & Lai, Kon S., 2001. "Long memory and nonlinear mean reversion in Japanese yen-based real exchange rates," Journal of International Money and Finance, Elsevier, vol. 20(1), pages 115-132, February.
    13. Joseph Alba & Donghyun Park, 2005. "Non-linear mean reversion of real exchange rates and purchasing power parity: some evidence from Turkey," Applied Economics Letters, Taylor & Francis Journals, vol. 12(11), pages 701-704.
    14. Ralf Becker & Walter Enders & Junsoo Lee, 2006. "A Stationarity Test in the Presence of an Unknown Number of Smooth Breaks," Journal of Time Series Analysis, Wiley Blackwell, vol. 27(3), pages 381-409, May.
    15. Bahmani-Oskooee, Mohsen & Kutan, Ali M. & Zhou, Su, 2007. "Testing PPP in the non-linear STAR framework," Economics Letters, Elsevier, vol. 94(1), pages 104-110, January.
    16. Mohsen Bahmani‐Oskooee & Scott W. Hegerty, 2009. "Purchasing Power Parity In Less‐Developed And Transition Economies: A Review Paper," Journal of Economic Surveys, Wiley Blackwell, vol. 23(4), pages 617-658, September.
    17. Mark P. Taylor, 2003. "Purchasing Power Parity," Review of International Economics, Wiley Blackwell, vol. 11(3), pages 436-452, August.
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    More about this item

    Keywords

    Yen real exchange rates; Nonlinear stationarity; Large swings; PPP; Unit root tests;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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